San Diego Gets Deflation Whiff. Real Personal Income Also Declines

New data from the Bureau of Labor Statistics show that for the first half of 2009, the San Diego consumer price index dropped 0.6% from 2008, the first decline in the local CPI since 1954, according to Kelly Cunningham, economist for the National University System Institute for Policy Research. Drops in gasoline and natural gas prices accounted for almost the entire price decline. Also, in 2008, personal income adjusted for inflation declined 0.04%, the first decrease since 1993. Personal income for the San Diego metro area (the county) is 16th in the nation. On a per capita basis, however, San Diego ranks 28th, according to Cunningham.

Through July of this year, the 3,190 new residential permits over the last 12 months is the lowest since the 1930s, when the county's population was 1/12th what it is today. Cunningham does not expect consumer spending to rise much next year, and says, that it "will likely be a long slog before unemployment starts to decline."

Comments

So often the "conventional wisdom" is wrong. That fact is what makes contrarian investing so rewarding for those who have the guts to pursue it. So, now the wisdom is that any rebound will be a long way off, and that we will bump along with high unemployment for a number of years. But, you know what, this time, I think the conventional wisdom may be right, and maybe a bit too optimistic. (Yes, too optimistic. This has a strong potential to get worse before it really improves.)

Response to post #1: Excellent points. The current "rebound," such as it is, is a creature of the massive amount of liquidity that the Treasury and Federal Reserve have pumped into the economy. The total is more than $12 trillion. The Fed alone has purchased more than $1 trillion of smelly mortgage paper. That paper has not gone away; it's just owned by the central bank. OF COURSE there have been some green shoots. You can borrow short term at almost a zero interest rate. So we have the carry trade: gamblers borrowing U.S. dollars at slightly above zero interest and putting the money elsewhere. Some of it gets into housing. Similarly, the Fed has been purchasing long paper, bringing mortgage rates down to an inordinately low level. So, OF COURSE, there has been some activity in housing. But ask yourself: where would the economy be without all this stimulus? Are there meaningful signs of recovery that are not the result of funny money? All this liquidity has driven the stock market up -- well beyond where it should be. I'd say the Dow may be worth 7,500 to 8,000 now. The long term, as you say, looks grim. But Wall Street consists of a bunch of day traders. The stock market no longer is a portent of the economy long term, and it never was a good one. Still, my prediction remains: the Dow will end the year at 9,000. It won't deserve to be there. Best, Don Bauder